Financial Services and Markets Bill

Baroness Meacher Excerpts

Committee stage
Wednesday 1st March 2023 Grand Committee

[Baroness Wheatcroft (CB)]

My Lords, this group of amendments has already been spoken to by several eloquent speakers. I support the amendments in this group, but I shall speak particularly to Amendments 233 and 235 to 237, to which I put my name. The common thread in them is encouraging financial institutions to be serious about their intention of helping the country meet its net-zero target. If the Government are serious about that target, they will surely see the merit in these amendments.

Financial institutions may understand that the long-term health of countries, their economies and their businesses requires a focus on net zero, but short-term considerations such as this year’s profit all too often influence their decisions. Hence, in 2021, the 44 largest members of the Net-Zero Banking Alliance, a group that includes Barclays, HSBC, Lloyds, Nationwide and NatWest, provided $143.6 billion in lending and underwriting for the 75 companies doing the most to expand oil and gas. Principles sometimes come too expensive for these institutions to follow. If those organisations are to be discouraged from such behaviour, in their own long-term interests as well as ours, it will be by forcing them to make firm environmental commitments and to publicly report on them.

It seems that the Government have shared this view. According to a report in the Financial Times last May:

“Ministers made a last-minute decision to withdraw plans to force big UK companies and asset managers to disclose their environmental impact”.


They decided to drop that from the Queen’s Speech at the last moment. The sustainability disclosure requirements were apparently seen as being at odds with the Government’s deregulatory strategy. There is plenty of deregulation rhetoric around at the moment, but those of us who were in the Chamber yesterday for the agonising discussion of the Retained EU Law (Revocation and Reform) Bill might feel that the strategy was far from evident.

These amendments are intended to provide help to the Government as they seek to implement their net-zero strategy. Amendment 233 would do for financial organisations what the Government have been planning for business generally. It would require the financial regulators—the FCA and the PRA—and Ministers to make regulations by the end of this year requiring sustainability disclosures for listed firms, fund managers, personal pension providers, banks, insurers and pension schemes.

In addressing this amendment, perhaps the Minister will confirm that this complies with the Government’s thinking in the wake of COP 26, when the transition plan task force was set to work to look at how large companies and financial firms should be required to report on how they are managing the transition to net zero. If the Minister accepts that, will she explain why this Bill should not contain this amendment?

Amendment 236 further details requirements. Amendment 237 complements Amendment 201. It refers to pension schemes and requires trustees to have regard to the long-term effects of their investment decisions. Pensions are all about the long term, so they should have regard to the long-term effects of their decisions, not the short-term effect on the bottom line for the fund manager who is interested in his bonus that year. A little legislation to help them on their way to doing the right thing seems a good idea.

The aim of Amendment 235 in the name of the noble Baroness, Lady Hayman, is, essentially, to provide that help to institutions in making these crucial decisions. A green taxonomy—long discussed—needs measurable criteria and this amendment would require the Treasury to provide a framework for that. As the Minister said, the Government are—apparently—committed to implementing the green taxonomy. This amendment, like the others in the group, seeks only to encourage the Government to demonstrate their commitment with the sense of urgency that is now required.

[Baroness Meacher (CB)]

My Lords, I wish to speak extremely briefly to support my noble friend Lady Boycott—I am sorry, I did not see the noble Baroness, Lady Sheehan.

[Baroness Sheehan (LD)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Wheatcroft. I am sorry that I kept bobbing up and down while she was speaking.

This is an essential group of amendments, several of which I have added my name to. They are important because billions to trillions of pounds will be invested over the near to medium term into an economy that is transforming with increasing rapidity into a low-carbon one. It is clear that climate risk is financial risk: returns on investments and the ability to pay back loans are exposed to the risks of rising temperatures, as evidenced by recent catastrophic climatic events, and action taken by policymakers to transition to a low-carbon economy, such as the US Inflation Reduction Act.

Businesses, big and small alike, are poised to pull the start trigger on investments but are held back in the UK by lack of clarity about the Government’s intentions. The Government have made the right noises but not followed through, leaving doubt and uncertainty in their wake. The situation is urgent. The US Inflation Reduction Act is a game-changer, and the EU will follow suit. Green investment is the future. Our businesses know that but are hesitating to commit, waiting for a clear signal from the Government that they are 100% behind the green revolution. Currently, the messages are rather mixed. 

For the sake of the debate’s flow, I will address the amendments to which I have added my name before addressing my Amendment 232. I start with Amendment 168, in the name of the noble Baroness, Lady Worthington. Climate risk is not specifically factored into either the regulatory capital risk requirements for banks or the solvency requirements for insurers. I support Amendment 168 and have added my name to it. I have pursued the theme of stranded assets for several years. I am concerned that the taxpayer is not left to pick up the cost, for example, of decommissioning oil and gas platforms in the North Sea abandoned after profits have been creamed off. How much better it would be if the Government clearly laid out a framework, via their regulator, that the risks in financing fossil fuel exploration, exploitation and production, as well as other climate risk-exposed sectors, must be taken into account prior to investment decisions being made.

I move on swiftly to Amendment 199 on deforestation. After fossil fuels, deforestation is—as the noble Baroness, Lady Boycott, pointed out—the second-largest contributor to global warming. It is responsible for 12% of all global greenhouse gas emissions. Scientists tell us that, to stand any chance of limiting global temperature rise to 1.5 degrees centigrade, commodity-driven deforestation must be ended by 2025.

What happens to rainforests matters to us all. In fact, although thousands of miles away, the UK has a large deforestation footprint. It is for this reason that, in July 2021, I and noble Peers from across the House tabled amendments on the issue to the Environment Bill, now the Environment Act 2021. I was pleased to see the noble Baroness, Lady Meacher, poised to add her contribution to this. I commend the Government for the action that they have already taken on this issue. Schedule 17 to the Environment Act was the first time that forest risk commodities have been addressed in legislation.

As already mentioned by the noble Baroness, Lady Boycott, Sir Ian Cheshire, the former chair of Barclays and head of the Government’s own Global Resource Initiative task force, tells us in an open letter dated 23 January and addressed to the Minister, the noble Baroness, Lady Penn; Andrew Griffith, the Economic Secretary to the Treasury; and all Members of the House of Lords:

“Under forthcoming secondary regulations, large companies will be required to establish a due diligence system to assess and mitigate the risk of importing commodities grown on illegally deforested land, reporting annually on their progress”.


When the Minister comes to reply, can she tell us when we may expect to see these regulations?

Sir Ian goes on to say that

“while this is an important step, regulating supply chains alone is not enough”.

It is therefore recommended that

“the Government should make it illegal for financial institutions to invest in or lend to supply chain companies that are unable to demonstrate forest risk commodities have been produced in compliance with ‘local laws’ (i.e. legally)”.